Quickie Idea: $ADT might not be secure, but it might be a steal....
www.yetanothervalueblog.com
This post is the second in a new series I plan on doing on an irregular basis. A “quickie” idea is an investment specific idea that I’ve been mulling over and find interesting, but haven’t dove fully into yet. A pretty simple hypothetical example: If Buffett bought out Coke at 25x earnings and Pepsi was currently trading for 15x earnings, a quickie idea would be “Why isn’t Pepsi a takeover target now, or at least interesting as a potential value investment?" Today's company is ADT (disclosure: long). ADT is a home security company; you probably know them best from the blue octagon "secured by ADT" sign that so many houses put in their front yard (side note: I'm sure homeowners put that sign out to discourage robbers, but is there any evidence the sign actually works for anything other than marketing ADT? I feel like I saw a study once that said it did but I can't find it, and I'm curious if the study is actually scientific or was company funded). The home security business should be a pretty good one given ADT's scale and brand. Consumers pay monthly, creating great revenue visibility and working capital dynamics, and customers should be reasonably sticky for a variety of reasons (mainly laziness; once you've had a home security system installed and turned autopay on, why go to the trouble of switching providers outside of something like moving?). There should also be decent scale benefits here that should provide some barriers to new entrants: for example, alarm systems need to be monitored 24/7, so you need some degree of scale to afford call / service centers that are running 100% of the time, and given we're dealing with personal safety and security here, having a brand consumers know and trust is probably a nice selling point versus a start up (as
Quickie Idea: $ADT might not be secure, but it might be a steal....
Quickie Idea: $ADT might not be secure, but…
Quickie Idea: $ADT might not be secure, but it might be a steal....
This post is the second in a new series I plan on doing on an irregular basis. A “quickie” idea is an investment specific idea that I’ve been mulling over and find interesting, but haven’t dove fully into yet. A pretty simple hypothetical example: If Buffett bought out Coke at 25x earnings and Pepsi was currently trading for 15x earnings, a quickie idea would be “Why isn’t Pepsi a takeover target now, or at least interesting as a potential value investment?" Today's company is ADT (disclosure: long). ADT is a home security company; you probably know them best from the blue octagon "secured by ADT" sign that so many houses put in their front yard (side note: I'm sure homeowners put that sign out to discourage robbers, but is there any evidence the sign actually works for anything other than marketing ADT? I feel like I saw a study once that said it did but I can't find it, and I'm curious if the study is actually scientific or was company funded). The home security business should be a pretty good one given ADT's scale and brand. Consumers pay monthly, creating great revenue visibility and working capital dynamics, and customers should be reasonably sticky for a variety of reasons (mainly laziness; once you've had a home security system installed and turned autopay on, why go to the trouble of switching providers outside of something like moving?). There should also be decent scale benefits here that should provide some barriers to new entrants: for example, alarm systems need to be monitored 24/7, so you need some degree of scale to afford call / service centers that are running 100% of the time, and given we're dealing with personal safety and security here, having a brand consumers know and trust is probably a nice selling point versus a start up (as